Level 3 to acquire Global Crossing for $3 billion

Summary:With the combination, Level 3 will operate networks in 50 countries with connections to 70 countries overall. The combined companies have more than $6 billion in annual revenue with adjusted EBITDA of $1.57 billion after cost savings.

Level 3 Communications said Monday it will buy Global Crossing in a stock swap valued at $3 billion.

The merger illustrates how the telecom market is rapidly consolidating. AT&T gobbled up T-Mobile just last month.

With the combination, Level 3 will operate networks in 50 countries with connections to 70 countries overall. The combined companies have more than $6 billion in annual revenue with adjusted EBITDA of $1.57 billion after cost savings.

Under the terms of the deal, Global Crossing shareholders get 16 shares of Level 3 for every share they own. The deal is values Global Crossing at $23.04 a share.

According to the companies, the new Level 3 will be able to cater to the local, national and global markets. It can also better target the enterprise.

Level 3 CEO Jim Crowe said in a statement that there's a "complementary fit between the two companies’ networks, service portfolios and customers." Level 3 said it expects to boost earnings via $2.5 billion in total synergies. Of that sum, 39 percent are network savings and another 49 percent from operating expenses. The companies only expect to save 12 percent of that $2.5 billion from the capital spending cuts.

One item to watch in this deal will be the impact on Level 3's content delivery business. Level 3 won Netflix over Akamai and Global Crossing could give the company a much larger footprint. The upshot: Akamai may increasingly look like a nice takeover target for a large telecom player.

Jeff Storey, president of Level 3, said on a conference call:

The whole CDN capability that -- both around the world now to really capitalize on the content markets, over the top, broadcast producer services, you will optimize the IP back bone as a result of that CDN capability but allow us to address opportunities with enterprise customers that heretofore we have not had a good offering so I see a significant opportunity there. And then let me round it out with the whole data center solution set which I think as talked to CIOs in the market today, the whole idea of a bit of a turnkey solution for transport hosting cloud-type services et cetera really does become the type of solution that a CIO need to simplify their business operation combined capability of the two companies around the world now will certainly make that a huge opportunity from a revenue point of view.

Topics: Networking

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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